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Housing Market Outlook

In the week that the Bank Of England pauses its quantitative easing initiative, we ask what this will mean for homeowners…The Bank Of England has pumped over £200 billion into the economy since the inception of its quantitative easing program last year. This has helped keep unemployment levels lower than anticipated and indirectly allowed credit to keep flowing through the high street banks.

However, printing money is not without its risks and inflation is the main concern. Last month saw an unexpectedly large 1% jump in inflation, the highest rise on record, and should this trend continue over the coming months, the Bank’s main focus will shift to curbing the threat of inflation. The one tool they have at their disposal for this is to raise interest rates. While politically, Labour would dearly love for rate rises to take place after an election, the BoE is officially independent and its monetary policy committee are charged primarily with keeping inflation in check.

A rise in interest rates makes sterling more attractive and as the pound rises, London property will look less good value to the European, Asian and American investors who have been propping up the London housing market with numerous cash purchases over the past year.

Equally as interest rates rise, so will mortgage rates, leading to a marked decline in mortgage affordability. At the same time as consumers 3 year tracker deals signed in 2007 come to an end over the next few months, many mortgage holders will be forced on to expensive variable rates, often 3-4% above the official Bank Of England base rate.

While this may seem like doom-mongering, it is worth remembering that no democracy has ever experimented with quantitative easing in the same way the UK has and no one can be sure how the economy will fare coming out of it. One thing is for certain, the mini-property boom we have seen over the past 9 months cannot continue in the face of the current anaemic economic growth. We expect to see mortgage availability drop once again, interest rates rise, repossessions increase and house prices fall. For more information call SecureASale today on 020 7117 6001.